Renovation Time!

Sales have dropped off a steep cliff in Vancouver.

Last July came in more than 30 percent below the 10 year average.

But one thing is picking up: Renovations.

Instead of upgrading to a better home more people seem to be staying put and trying to make their home better.

The amount spent on renovations has gone up every year for the past several years, Simpson said, but added that he isn’t sure if that’s because more people are renovating or because they’ve become more expensive.

Canada Mortgage and Housing Corp’s third-quarter Housing Market Outlook, released in August, said renovation spending in 2011 was $61.7 billion in Canada. CMHC says that amount will moderate in 2012, growing to $63.3 billion, but is expected to strengthen in 2013 to $65.6 billion.

In B.C., spending on renovations in 2011 was $7.6 billion. Spending is expected to remain stable in 2012 and grow to $7.8 billion next year.

For the most part, business is good for contractors, even in this year’s moderate market, Simpson said.

“One contractor I talked to said he’s having his best year ever,” Simpson said. “He said one client bought a home and they’re spending money to update it, but most clients want to stay where they are and bring their homes up to date.”

I guess the advantage of living in a construction zone is that you can do it a little bit at a time when you can afford it, like buying a little bit of a house at a time instead of all at once.  Sounds like some people are also finding it harder to get financing for their dream homes:

Another contractor told Simpson he’s had some customers having a harder time borrowing money from the bank, which may be a result of new mortgage refinancing rules. “Some people seem to be getting a little pushback from the banks, or they might not be able to borrow as much as they want,” Simpson said. “If they can’t obtain the financing, they just have to scale it back a bit. With a renovation, you don’t have to do it all at the same time.”

Read the full article over at the Vancouver Sun.

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Debt Sheeple Are Human Cattle
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Debt Sheeple Are Human Cattle
This is great news for the ultimate owner of these properties after foreclosure. Keep adding to your debt morons! You’re like a cow that walks so far off pasture, it doesn’t even need transportation to the slaughterhouse input chute! It is remarkable how suitable the advice given by experienced cattle handlers is for the present Canadian real estate market situation. The following is verbatim from the web page http://www.wikihow.com/Herd-Cattle –quote– Always remain calm and quiet when handling cattle. Do not get angry, frustrated, excited, or nervous, otherwise the cattle will sense your state and reflect it in their behaviour, causing them to become excited and anxious also. Do not yell or use excessive force (like beating them with the sorting stick, giving them a few too many shots with the cattle prod, etc.) to get them going. Not only is… Read more »
G
Guest
G

Hope someone can answer me on this renovation topic.

I am interested in this 2bed/2bath concrete condo. And I plan to make the living room bigger by removing one of bedroom wall (So becomes 1bed/2bath). I assume this require strata approval because of structural safety? Can I make an offer on this property with condition that the strata approves this renovation?

And who and what’s the cost to do such structure study? Any other things to watch out?

ScubaSteve
Member
ScubaSteve

Here’s a message from me to the current owners of the foreclosed house I will eventually be buying:

Please put in gas appliances! I hate electric stoves. Also would like a few fireplaces, a hot tub in the back yard and maybe a new fence surrounding the property. If you have money to spare (before going bankrupt), please be sure to include new windows, light fixtures and maybe even a new deck (wood please).

Thank you.

patriotz
Member

“Can I make an offer on this property with condition that the strata approves this renovation?”

Sure. The owner and/or strata can also tell you to take a hike.

JB
Guest
JB

There is nothing bad about the renovation. If you have a broken roof, you have to get a new one. What I see as a principal problem is people (or sheeple) who seek renovation through refinancing their own home (check How credit unions escape new mortgage rules) and use their money for other thing or waste them in a rebuilding adventure which will not bring a higher value to their home (especially now).

Anonymous
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Anonymous

Victor Adair is a Senior Vice President and Derivatives Portfolio Manager at Union Securities and often heard on CKNW. He recently did a commentary on how he supports the theses there will be deflation in the coming years. How is he betting on this outcome with his own money? Some derivative or short trade? Nope…he is doing what many around here are doing.

From the article:

“My deflation bet: I rent a lovely condo on Vancouver’s waterfront…I have no interest whatsoever in buying real estate here. My long term savings are mostly in cash…”

http://moneytalks.net/topics/bonds/7521-the-authorities-hit-the-acceleratorsome-big-picture-thoughts.html

Anonymous
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Anonymous

People think doing a renovation is like putting money in an RRSP. You can just take it out later and you will get is all back plus some. As we have seen in the US that changes quickly when housing prices start to drop.

Vote Down The Facts
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Vote Down The Facts

@G:

Why would you pay for a 2 bedroom, then decrease its value by turning it into a 1 bedroom?

Anonymous
Guest
Anonymous

@Vote Down The Facts: “Why would you pay for a 2 bedroom, then decrease its value by turning it into a 1 bedroom?”

Better question. Why buy in the first place.

Anonymous
Guest
Anonymous

@JB: “There is nothing bad about the renovation. If you have a broken roof, you have to get a new one.”

So there is an increase in the amount of roof replacements required? That is why reno $ are going up?

Anonymous
Guest
Anonymous

@Vote Down The Facts:

If G is buying now, resale value is obviously not something he or she cares about anyway.

Atomic Frog
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Atomic Frog

Renos are always 100% expenditure ONLY, it depreciates in value over time. When your property value is dropping like a stone like now, why does anyone want to throw good money after bad money?

Renos does not increase the land value of the property. Under the best case scenario, it adds to the building value ONLY IF THE NEXT BUYER LIKES IT!!!!! If that moron does not exist in the next 3-4 yrs, the so-call value added via the renos DEPRECIATES during these 3-4 yrs!

Many Franks
Guest
Many Franks

@Vote Down The Facts: Because he wants to live in it?

Troll
Guest
Troll

Those yearly reno increases aren’t much above the rate of inflation, don’t think there’s much of a story here.

VMD
Member

[Hiring expectations take steep drop in Vancouver]
– employment reports in next few months will be interesting to watch..

September 11, 2012 8:00 AM
Hiring expectations are down sharply in Vancouver, ten percentage points from this time last year.

Just 14 per cent of employers expect to do new hiring in the last quarter of 2012 – from October to December – and eight per cent actually intend to cut their workforce, according the latest Manpower Employment Outlook Survey. Most employers surveyed, 76 per cent, plan to maintain their current employment levels and two per cent are unsure.

That leaves the “net employment outlook” at six per cent. In Canada the net employment outlook was 10 per cent, down 3 percentage points from last year.

The fourth quarter of 2011 the net employment outlook was 16 per cent in Vancouver.

http://www.vancouversun.com/business/Hiring+expectations+take+steep+drop+Vancouver/7223638/story.html

patriotz
Member

Household debt: economic threat or ‘godsend’?

For the motion: Ben Rabidoux, analyst and strategist at M Hanson Advisors

Yay!

Against the motion: Eric Lascelles, chief economist at RBC Global Asset Management

Yet in the pantheon of threats to the Canadian economy, the household debt saga is much less problematic than such formidable external risks as Europe’s battle to maintain solvency, a Chinese hard-landing scenario, a commodity shock or the messy business of the U.S. fiscal cliff. Any of those could easily knock the Canadian economy into recession or spur a financial crisis.

Canada’s household debt figures centrally in my own muted forecast for Canadian economic growth. However, it does not constitute an outright recession risk.

BUT it will greatly magnify the negative effects of any one of the external risks he noted, at least one of which is almost certain to happen.

Best place on meth
Member
Best place on meth

I wouldn’t count on the renovation binge continuing much longer as prices fall and people’s home equity vanishes into thin air.

What are they going to finance it with?

boogeybear
Guest
boogeybear

Home renovations are also just one of those things men do when they first retire. Something to keep themselves busy and make themselves feel useful.

Patiently Waiting
Member
Patiently Waiting

The renovation craze started with the housing bubble (about ten years ago) and will end with it. Growing up in middle-class Vancouver in the 70s and 80s, I don’t recall anyone’s houses being renovated (especially not for aesthetic reasons).

But there will still be lots of jobs repairing the crappy housing we’ve built lately, along with all the condos that will require more maintenance with the new strata regulations.

Also, we will probably see a new industry combining tiny condos into reasonable living spaces (once the market bottoms).

Anonymous
Guest
Anonymous

@Patiently Waiting:
#19,
based on what you said, i assume you do not go to personal care service either, i.e haircut, gym, new clothing. you just let your hair and nails grow long and dirty, clothing is out of date.

Ben
Guest
Ben

Home renovation expenditures in Canada are nearly a full GDP percentage point above long-term norms. I would expect they are even higher in BC. Previous commenters are absolutely right: This “boom” dies when home equity shrinks and/or HELOC and refi rules tighten and/or the perceived investment return on these renovations realigns with reality and renovations are once again done primarily for utility and general enjoyment.

http://www.theeconomicanalyst.com/sites/default/files/article_inside/2011/08/home_renovations_as_a_percentage_of_gdp.jpg

jay
Guest
Court Determines Realtor Has To Pay Income Tax Rates On RE Flip Profits – “The CRA discovered that Giusti had bought and sold seven condos in seven years.” Posted on 11 September 2012 | 14 Comments “When you sell a property that isn’t your principal residence and make a profit, half of the amount is taxable. This is the so-called capital gains tax and it’s pretty straight forward, but every situation is different. It all depends on how the Canada Revenue Agency views the transaction. Real estate agent Romano Giusti bought a condo on Richards St. in Vancouver in November 2006 and re-sold it in June 2007 for a profit of $30,831. When he filed his tax return, he paid no tax on the profit, saying it was his personal residence. The CRA re-assessed this return and discovered that Giusti… Read more »
oneangryslav2
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oneangryslav2

@boogeybear:

Home renovations are also just one of those things men do when they first retire. Something to keep themselves busy and make themselves feel useful.

So true. My father is a case in point: ever since he retired (five years ago) he’s been busy doing renovations and fixing up the yard. It has been good for him, however, in that it keeps him active and the added physical labour keeps him healthier than he otherwise would be. That being said, he could probably get the same amount of exercise were he to actually, you know, exercise, but the renovation work has one added side-effect: it keeps my mother happy! 😉

oneangryslav2
Guest
oneangryslav2

@Ben:

Home renovation expenditures in Canada are nearly a full GDP percentage point above long-term norms. I would expect they are even higher in BC.

Nice chart, Ben! A seemingly minor problem, though, with the part quoted above. This relates to a larger issue with respect to the presentation (both graphical and verbal) of data. Your verbal description of the dynamics of renovation growth over time (“a full GDP percentage point above…”) is less striking than the graph. I think it would be more appropriate in this case to have written that the current level of renovation activity (as a percentage of GDP) is 50% higher than the long-term average.

Ben
Guest
Ben

Some data porn from Van, Toronto, Montreal and a look at why a 2009 style demand rebound is very unlikely given current credit trends.

http://www2.macleans.ca/2012/09/11/canadian-housing-theres-an-obvious-oversupply-problem-in-vancouver-toronto-and-montreal/

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